Financial Stability Review 2/2020

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In the autumn 2020 assessment of Eesti Pank, the risks to the functioning of the financial sector next year are large (see Table 1). The banking sector was in a strong position when it faced the sudden deterioration in economic circumstances in the spring, and financial services have remained easily accessible throughout the crisis so far. If the economic environment remains uncertain and the number of loan clients with problems increases substantially at the banks though, the banks could decide to tighten their lending standards and conditions. This could concern the sectors that were affected most by the crisis or if the problems are worse it could affect the loan supply more broadly, making it harder for the economy to recover from the crisis. This risk is reduced by the strong capitalisation of the banking sector and its continuing good profitability, which help it to cope with the loan losses that will arise following the crisis.